The Bangladesh Bank drafted new bankruptcy laws to replace the 1997 Act, empowering lenders to file bankruptcy cases without the debtor鈥檚 consent, creating legal tools to stop asset transfers of defaulters, recover properties from abroad, and even continue proceedings after a defaulter鈥檚 death.
It also establishes cross-border insolvency cooperation and brings all financial distress cases under one coordinated legal framework.
The government thinks that the 1997 Act became outdated as it could not fit to the current situation, therefore moved to replace by new law.
The government is finalising the Insolvency and Bankruptcy Ordinance 2025, a sweeping reform that replaces the obsolete Bankruptcy Act 1997 with a unified, creditor-driven system to handle both individual and corporate insolvency.
Bangladesh Bank has sought public opinion regarding the new law within November 20.
Under the new framework, control of a defaulting business will be handed to a licensed Insolvency Professional, who will manage and liquidate assets under court supervision.
It reflects international insolvency standards, including cross-border provisions that recognize foreign proceedings and cooperation between courts.
The 1997 Act was limited, slow, and rarely applied. Bankruptcy cases could only begin when a debtor declared inability to pay, and the process dragged through lengthy civil litigation.
The new ordinance shifts this to a creditor-driven model where banks or financial institutions can file directly for insolvency or bankruptcy if a borrower defaults.
Once accepted by the court, control of the business passes immediately to a licensed Insolvency Professional.
These professionals replace the old court receivers and take charge of all assets except basic personal necessities.
They manage operations, assess claims, sell property, and distribute proceeds among creditors under strict judicial supervision.
Their accountability and quarterly reporting are meant to ensure transparency and prevent manipulation.
The new framework also introduces a moratorium鈥攁 temporary pause on all lawsuits or enforcement actions against a debtor once insolvency begins. This prevents individual creditors from seizing assets and allows fair, collective recovery.
The law expands bankruptcy beyond liquidation.
It includes a reorganization option, allowing viable businesses to restructure under court supervision to protect jobs and maintain operations. Small borrowers can opt for simplified procedures to save cost and time.
A key reform addresses one of the biggest weaknesses in past debt recovery鈥攆raudulent or preferential transfers of property.
The proposed ordinance empowered the court to reverse any asset transfers made to family members or associates before or during bankruptcy if done to avoid repayment.
Even undervalued transactions can be cancelled and assets reclaimed for fair distribution.
The ordinance further clarifies what happens if a debtor dies during the bankruptcy process. The proceedings continue against the estate of the deceased until all assets are realized and distributed among creditors. This stops families or heirs from escaping liability by closing the case after death.
The new law also specifies which assets are excluded from bankruptcy.
These include essential household items, work tools, religious objects, and limited living expenses.
All other property, including real estate, movable goods, digital assets, and intellectual property, form part of the bankruptcy estate and can be used to repay creditors.
To enhance transparency, the ordinance mandates an Insolvency Register under the Registrar of Joint Stock Companies and Firms.
Every order, proceeding, and discharge will be listed digitally and made accessible to banks, regulators, and the public. This will help lenders verify if a borrower was previously declared bankrupt.
It also introduces a priority order of repayment, ensuring structured distribution.
聽Insolvency costs are paid first, followed by secured creditors, recent government dues, employee claims, unsecured creditors, and finally shareholders. This prevents arbitrary settlements and gives predictability to lenders.
Another key feature is the cross-border insolvency chapter, a first for Bangladesh.
It allows domestic courts to recognize and cooperate with foreign bankruptcy proceedings involving Bangladeshi debtors or assets abroad.
Foreign creditors can approach local courts to recover dues, and Bangladeshi insolvency professionals may act abroad on behalf of local cases.
The law differentiates between main proceedings鈥攚here the debtor鈥檚 main business is located鈥攁nd non-main proceedings, where they have smaller operations.
Once recognized, the court may freeze local assets, stay lawsuits, and assist in repatriating funds to ensure fair recovery.
To prevent misuse, a public policy safeguard allows Bangladeshi courts to reject recognition of a foreign proceeding if it conflicts with national law or public interest.
The ordinance also supports concurrent proceedings, allowing local and foreign cases to proceed simultaneously but in coordination.
The ordinance replaces sections of the Companies Act 1994 that dealt with company winding-up due to debt default, consolidating all insolvency rules under one law.
It also proposes special insolvency courts with district judges or designated officials to ensure faster disposal of cases, replacing the slow general civil process.
Another major addition is the explicit inclusion of digital and intellectual property rights as part of the debtor鈥檚 estate, ensuring the law covers modern commercial realities such as online businesses, patents, and trademarks.
Professional integrity is a central focus. Insolvency Professionals and court administrators are bound by fiduciary duties of honesty and impartiality.
They can be removed by creditor vote or court decision for misconduct, bringing accountability to a system long plagued by collusion and delays.
Together, these changes create a complete legal infrastructure for handling financial distress, asset recovery, and liquidation.
At a time when loan defaults have reached record levels, and many borrowers have shifted assets abroad or hidden them under relatives鈥� names, the new ordinance seeks to prevent such practices through stronger enforcement, transparency, and cross-border cooperation.